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Tax Reform Provides Progressive Deductions for Individuals with Monthly Income up to $3,000

Published on May 08, 2023

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Update to: SRI will apply new control for Income Tax

Published: Volume 7, Issue 10

With the tax reform that the Executive submitted to the Assembly, the State’s income from Income Tax would be reduced by somewhere between $50-$200 million.

The director of the Internal Revenue Service (SRI), Francisco Briones, explained that the government’s tax reform includes progressive deductions for natural persons who pay Income Tax. Briones stated that the personal expense deduction mechanism will benefit taxpayers with income between $800 and $3,000. Finance Minister Pablo Arosemena had previously indicated that the proposed deductions for Income Tax would have a cap of up to $15,200 per year, and there will also be benefits for taxpayers with family responsibilities.

Briones emphasized that tax policy should consider different economic realities, citing an example where someone who earns $1,500 and supports dependents should be treated differently from someone who earns the same but has no dependents.

The possibility of deducting personal expenses was in force until 2021, when a tax reform replaced it with a limited discount of $5,327 per year. Re-implementing these deductions would cost around $200 million to the State accounts, according to Briones. However, the government is also considering targeting some benefits for the productive sector to reduce the fiscal impact of the deductions to $50 million.

The tax reform, which the government presented on May 8, 2023, also contains new progressive rates for popular businesses of the Simplified Regime for Entrepreneurs and Popular Businesses (Rimpe). This is in response to the Constitutional Court’s ruling that the single rate of $60 implemented by the Economic Development Law in 2021 for these businesses is unconstitutional because it is not progressive.


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